What determines the price of Bitcoin?
Various factors that affect Bitcoin’s price include supply and demand for BTC, competition from other cryptocurrencies and news, production costs and regulation.
Supply and demand
Those with a background in economics are aware of the law of supply and demand. But if you are not familiar with this concept, let us help you understand. Under this law, supply and demand market forces work together to determine the market price and quantity of a particular commodity. For example, the demand for an economic good decreases when the price increases, and sellers will produce more of it or vice versa.
An event called Bitcoin halving affects the price of Bitcoin as the situation where the supply of BTC decreases while the demand for BTC increases. As a result of the high demand, the price of BTC will move upwards.
In addition, Bitcoin was created by Satoshi Nakamoto with a hard cap of 21 million BTC. That said, miners will no longer receive new Bitcoin to confirm transactions once this limit is reached. Four years of halving block rewards may not affect the price of BTC at that time. The things that will determine the value of Bitcoin will instead be its real applications.
Competition and news
BTC faces competition from altcoins such as Ethereum (ETH) and meme coins such as Dogecoin (DOGE), making portfolio diversification attractive to investors. Any upgrades from the existing cryptocurrencies could bring BTC’s price down in contrast to a completely different scenario where Bitcoin was the only existing digital currency. Due to media coverage, you may want to buy cryptocurrencies with a positive outlook and ignore those with a shady future.
Production cost
The production costs for Bitcoin include infrastructure costs, electricity costs for mining and the degree of difficulty of the mathematical algorithm (indirect cost). The different levels of difficulty in BTC’s algorithms can slow or increase the speed of the currency’s production rate, and affect Bitcoin’s offerings, which in turn affect the price.
Regulation
The rules for cryptocurrency are constantly changing, from countries like El Salvador accepting it as a legal tender to China formally banning cryptocurrencies. The price of BTC can be reduced if there is concern about a specific government’s decision against cryptocurrencies. In addition, regulatory uncertainty will create fear among investors, and lower Bitcoin’s value further.
